The buyer should have asked before she bid, but many dont.

Re your original question, it can be simple if all parties are willing to cooperate. If a buyer opens a dispute it will close automatically if you refund the payment.

Always refund the same way the buyer paid, so yes, use the refund link in Paypal if they paid that way. (never use Paypal to "pay" a refund to a buyers Paypal a/c)